Market Brief: Tuesday, September 7, 2010

Summer is over and elections are coming. Elections have never been more important. The Tea Party movement is getting headlines, but in some ways, nobody has defined that movement. As for me, I loved the theme of compassionate conservative, but politics and Katrina proved too much for the implementation. But the new political debate - business versus government - is leaning my way. I’ll never forget the 1994 election that is being compared to this year’s big anticipated change. The country woke up on the day after the election, and got something nobody was expecting. This year is different. The pollsters are predicting a Republican victory. Now, what has this got to do with the stock market? A lot, in our opinion. We actually believe the stock market will rally, and Phase II of the bull market will kick off between now and Thanksgiving - probably sooner rather than later. Earnings growth is fantastic. In truth, the economic recovery out of the recession has been stronger than from the last two recessions.

Phase I of the stock market started on March 9th, 2009. It actually started losing its momentum in early January of this year as the mid-phase correction started. We believe the final low of the correction occurred on July 2nd, 2010 and the evolution of Phase II is already becoming evident in the international emerging countries, in the price of copper, and in exciting sectors like networking, biotechs, etc. This tells us that the “correction” since the April top is just that, a correction that is biding its time, but still produces enormous potential in the next four years.

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